Follow signals, don't chase price - JD Henning

0:21Thank you.

0:30in your updated thoughts on the market, primarily as it's predicated around value and momentum, which are two metrics that we've, or two factors that we've been discussing. We had Steve Kress on and he was talking about the quant metrics that he's looking for and how important value and momentum are to that process. And also just in general, this market has left many investors confused or picking at things more than they possibly would in other years. Value seems to be a big deal. Momentum seems to be a big deal. There are other big deals for sure. But how would you start out your update for investors in terms of how you're thinking about and looking and analyzing this market?

1:15Yes.

1:15JD Henning:Well, thank you for asking, Rena. This has been another challenging year and we're doing really well. All of our portfolios are beating the S &P 500 year to date. And as I told you before, and I tell my members every day, I never know what the future is going to hold. And I don't claim to know what the future will be to the end of the year. But as you know, I use a very quantitative process using the momentum gauges. And I just follow what the signals tell me. And I have a market momentum gauge, an S &P gauge, and 11 sector gauges. And as you know, the start of the year, we saw a huge 20 % decline in the market, especially in the consumer cyclical sector.

1:59JD Henning:And we loaded up on bear funds and made over 20 % to the April lows. We've seen an incredible amount of volatility from all the policy changes, from conflicts overseas, from the Fed rate change to tariffs and all the discussion and debate surrounding those. And again, I don't claim to know what the future will hold, but we just follow the gauges. And the performance has been phenomenal this year. This is my ninth year on Seeking Alpha. And all of our portfolios are still leading the S &P 500. And we're having one of the best years ever in the MDA breakout picks and in our ETF portfolio. Another portfolio that I'm doing is the premium portfolio.

2:48JD Henning:and that one only trades when the S &P 500 is positive. And so we had a negative signal right out of the gate. And it's kind of hard when you start the year with a negative signal, but we avoided so far, we've avoided 18 weeks of negative signals. And in the positive weeks, we've produced 28 % returns. You know, I'm looking at it now as we see in another swing in the market, But the way I measure the volatility of the S &P is on plus or minus 2 % daily swings. And through May, we've already seen 10 plus or minus 2 % daily moves. And in all of 2023 and 2024 combined, we only had nine of those events.

3:35So we've had more of those daily swings through May than we had in the last two years combined.

3:42JD Henning:And that kind of volatility lends itself well to the timing indicators and to using the gauges. You know, our members are following the signals closely. And you can choose what kind of risk level you want to take on. You can go with daily signals, weekly signals, or monthly. And, you know, there's a different level of volatility within those timing indicators. On the premium portfolio, as I said, it's up over 25%. I think it's 28 % was what I just said. And what we do is we have 20 positions that we trade in and out based on the signals. And I use breakout picks that come from my automated website and my algorithms.

4:26JD Henning:And we trade as long as the signals for the market are positive. That tells me that the money flows are still coming in. And so I load up on aggressive gainers across all different sectors. I always tell people be in the sectors that are the most positive when the market is the most positive and then look for the best stocks in those sectors and that's what we do and you know we're almost double the S &P 500 trading in 18 fewer weeks so that that's quite an accomplishment And then on the value side, I leverage my doctoral research into many other published financial articles and journals of what the top value portfolios are.

5:14JD Henning:And one of the most popular ones is the Piotrowski-Graham portfolio. And what that is, it's a combination of a model, an algorithmic model from Joseph Piotrowski and Benjamin Graham. And those gentlemen are separated in time by more than 60 years. But I've blended their two value algorithms together and enhanced it. And what I call the Piotrowski portfolio is beating the S &P 500 again this year. And over the past eight years, it's consistently beating the S &P. And it's never had a negative year. So credit to those gentlemen for their value selection models. And I share that with my members as well.

6:00JD Henning:So we have over 10 portfolios that run the range from aggressive daily momentum breakouts that I publish every week. And then we have the long-term value portfolios that we measure for up to two years. And on the breakout side, it's just been a phenomenal year, especially with the recovery from the April lows. So I can, Rena, if you like, I can just highlight some statistics on our breakout stuff. Yeah, absolutely. Just in the past year, we've had 102 picks go up over 20%, 69 picks over 50%, 69 picks over 50%, 33 picks over 100%, 12 picks over 200%, and our RGTI, our Getty, has produced 1 ,165 % gains for members from last year or in the past year.

6:59So I never know how long these

7:02JD Henning:stocks are going to go. We follow the signals where they lead us. Sometimes we have to sell out sooner than we like. But with this run from the April lows, it's been the longest positive signal on my gauges that I've ever recorded in my database. And that's at least from 2020 on the S &P 500 and from 2018 on the market gauges. So this is a great run. It may be another five years before we see a run this positive. But I tell people, load up, put your sales up, get as many good stocks until the signals turn negative and then be careful. And how do you differentiate between trading and investing right now?

7:47Best example, you can think of in terms of what you got into and what you got out of and why in this market environment?

7:55JD Henning:Yeah, I'd be happy to do that. Let me, I think if I start maybe with the value portfolios, we can talk about the Piotrowski value. That one, I just take, you know, whatever the algorithm gives me from the gentleman's study on value. And it started off the year with a lot of gold stocks and mining. So we had Sentara Gold and we had BVN, the mining company, Campania de Minas Buenaventura. Yeah, my Spanish is terrible, but from Peru. And both of those stocks gained over 100%. And they're still giving us positive signals as gold and mining go up. Do you want to maybe discuss some of those positive signals?

8:43JD Henning:Yeah, we use the basic materials sector gauge, and it looks at all the stocks in basic materials. And that includes everything from paper to gold, to wood, to silver, lumber. It's quite a mix, but it tells whether the money flows are positive or negative. And it told us to go look at these stocks as a strong one. And in fact, as we're talking basic materials has been the longest positive sector of the year. I believe we're on 24 weeks of a positive signal, 45 days on the daily chart, which is more sensitive. But within that, we said, well, look at gold, look at some of these mining companies, you know, they're attracting a lot of inflows.

9:28JD Henning:And, you know, we loaded up. It just happened that those two that I highlighted from the value portfolio, they had nothing to do with momentum gauges. They were completely on the Piotrowski and Graham algorithm, but they benefited because they were in the best sector. And basic materials has just been a phenomenal sector this year. Those are two that I still like. They're still doing well. And with the US dollar falling, that's another benefit to basic materials. Any other stocks or sectors that you would care to highlight these days? Yes. I would love to highlight healthcare. It's been beaten down pretty hard.

10:11JD Henning:And unlike the basic materials, it's been running almost into overbought levels on our technical indicators. Healthcare has been oversold. And until recently with Trump's drug deal or drug policy to try and cut the cost of pharmaceuticals, we've seen a huge rally in some of the biotech funds with Labu, Labu, the biotech, and Cure. those have a long way to go to recover. And I think that can provide not only breakout stocks that we're heavily invested in, but also long-term value stocks. And so the selections in there are something to watch going to year end. The other thing is with these rate cuts, you know, that helps with loans, that helps with smaller cap stocks.

11:04JD Henning:And I'm telling people to keep your eyes on the regional banks. Specifically, the fund is DPST. And those are small cap banks that really need a break from higher interest rates. So those are some of the segments I'm looking at for long-term value. Obviously, semiconductors have been doing fantastic. We've had a positive technology signal going on for weeks now. We've been holding multiple positions in our active sector ETF portfolio. That's a new model for this year. And my members absolutely love it. We're following six of the sector gauges and just buying ETFs for those sectors. And that model is up 53 % year to date.

11:46JD Henning:And it's in both bull and bear funds. So we're riding the declines. We're riding the market gains. And it's a great way to time the markets. When you're talking about tech specifically, which as we've talked about numerous times on this podcast, how much health care at this point is kind of a tech sector, how how overlapping all the sectors are. But for this point, in terms of all the fluctuations, I guess, in the news in terms of what's coming for tech, how much China is going to be a part of things, how much U.S. players are going to be involved, how much NVIDIA is going to be in charge of the whole thing.

12:28How, in terms of your indicators, how much do, because we're in these unprecedented, unknowable times right now, how much do you figure for those things and how does that play a part of your strategy and process?

12:42JD Henning:Well, those are all very important things for people to be watching. There's just, for me, there's just too much to keep up with. There's AI, there's the buyouts, there's open AI partnering with AMD and all these incredible things happening day to day. I just rely on my signals. I start the day looking at which sectors are positive and then I look at which stocks are breaking out, which ones have what I call a segment six MDA breakout condition. and you know amd which is remarkable um had a positive signal last week on thursday and friday leading up to the uh the deal with open ai which was just incredibly i think we saw a 36 percent gain in one day in amd and it's still positive on on my multiple discriminant analysis charts and and by that what i mean is i'm my doctoral research was to look at what are variables that can predict a price move.

13:44JD Henning:And I'm not interested in using price change as a variable to predict price change. Those kinds of models are all over the stock market. People are constantly chasing price, but I wanted to see, are there variables that we can look at to anticipate price moves? And one obvious variable is money flow. I think we all know intuitively that if insiders and institutions are buying up a stock, it's very likely that that price is going to go up. So that's one of more than 75 variables that I've tested. And I don't use price change to forecast what I'm trying to solve, which is price change. And so this algorithm that runs automatically, it told us on Thursday that something unique was happening to AMD.

14:32JD Henning:And And I didn't buy it myself, but I had members buy it. I had members that loaded up based on the chart signal, and they were very happy to find out that there was a huge deal with OpenAI. And I think one of them even got a leveraged fund on AMD and did even much better than 36 % gains. So these are just some of the models that we're using. It goes on live. I have live charts and signals and members can do their own trading as well. But I use it for the overall market analysis. I use it for my active portfolio, the premium portfolio. And I use it for these sector ETF models that it's now up 53%.

15:20JD Henning:And that's a fund of funds. So we have 20 positions. And in order to achieve 53 % returns, we have to essentially find 20 funds that have gained 53%. We've been benefiting greatly from these signals. You know, I hope people will test them out. We'll try them for themselves. And, you know, I think our nine-year track record on Seeking Alpha, you know, can speak for itself. I'm curious why you didn't get into AMD. What was your reasoning there? For me, I mostly trade in ETFs in my personal trading. I'm happy to present 10 different portfolio models with very different risk portfolios to help people build their optimal portfolio mix.

16:08JD Henning:What I try and teach members is it's not about just picking a winning stock. You want to come up with a model that lets you sleep at night, and you want to have a mix of maybe ETFs or maybe stocks. that you can gain for a long period of time. One of the things I tell people is that my trading from my younger days is very different today than it was 35 years ago. And we all change our trading behavior, whether that becomes more like an investor and you just kind of leave it alone and look for the major market signals or you try and day trade on big moves. So it just didn't fit my selection model for my personal setup right now, which is ETFs.

16:54JD Henning:But it did appeal to many members, and I'm glad it did. And why are you primarily focused on ETFs there? Oh, for my personal use, I like the natural diversification that comes with many of the funds. I can get into sectors right away that I think are positive. And the more I use these momentum gauges from my automated system now on VMbreakouts.com, the more I can just kind of set it and forget it. I really anticipate that following the signals is really the way to go. Whether you're a monthly trader or a weekly or a day trader, we have different models that anyone can invest in. And what would you say to those investors that feel like with ETFs, you're not getting as big of a win as you possibly could if you're not into the individual stocks?

17:50What would you say to that?

17:51JD Henning:Well, ETFs come in all shapes and sizes. Especially now. They sure do. There are some ETFs that just trade in a single stock, and some of them are 3x leveraged. I believe there's even 4x, maybe higher. But you can get extreme risk way beyond the stock if you want. And so you can certainly get more bang for your buck, but you can also increase your risk and your downside. What I tend to focus on are more diversified ETFs. But I do on occasion, I trade in some funds that are like FNGU, which is the bull fund for the the FANG mega caps back when we were more commonly calling them the FANG stocks, but these are the magnificent seven plus three.

18:46JD Henning:I think there's 10, 10 of the largest stocks in the market are in that fund. That's a good one for, you know, the, the markets. It's a good one for technology. It's loaded up on the biggest stocks. And, you know, frankly, NVIDIA has become an index unto itself. And so we track that on our MDA chart. I believe NVIDIA now at like$4.1 trillion or$4.2 trillion market cap is close to 30 % larger than the entire Russell 2000 combined. Tracking the behavior of NVIDIA will tell you in large measure which way the markets are going to be headed. Let's say you're talking to an average retail investor and they're not necessarily interested in getting into somebody else's strategy.

19:35They're interested in stock and or ETF picking and or certain sectors that they're interested in. What would you say to that average retail investor right now? What should they be keeping in mind for their own strategy these days? Something to keep in mind.

19:52JD Henning:I never tell anybody to abandon their own strategy or their own preferences. I just think that they can leverage a lot of good signals and information that we provide. I would say to them, stick to what you believe in, stick to what makes you comfortable, maybe learn a little bit more and you can enhance your returns and results. What I would do is direct people to the long-term value portfolios that I measure in a buy and hold return. I don't necessarily advocate buy and hold because you can avoid major downturns with following some signals. But for those, I just say, you know, if you're just comfortable holding through big market swings, you know, go with the Piotrowski grand value portfolio.

20:35JD Henning:You know, that that has very strong results over time. We have we also have forensic portfolios. We have a positive forensic and a negative forensic. Those are based on accounting algorithms that look for unusual financial data and accounting data inside of a company. Those are pure fundamental approaches to investing. So my models go across the board from technical, behavioral, fundamental, value, momentum. I try and leverage all the things that work to get the best possible results. And I think the more that people follow different models, the more people who follow those, you know, even if it's constellations or, you know, NFL football results, if more investors follow those kind of signals, you're going to get similar results.

21:31JD Henning:So I embrace the most popular models and I blend them with signals. So for a new person starting out, I would point them to some of the safer portfolios and say, look, if you're not into timing, just do a buy and hold. And our positive forensic is up 8.4%. Our negative forensic, which looks for anomalies, that's up 14.8%, just buy and hold. And our Pyotrowski-Gram is up 17.7%, just buy and hold. Again, those are things that you can enhance greatly if you were to avoid the negative 18 weeks of signals that we've had. If you miss the 20 % downturn at the start this year, which I believe is the worst downturn since 2022 or 2020, or at least the first start of the year in at least three years, you would greatly enhance your returns.

22:32JD Henning:And so, you know, most people start off as like, I'm always a buy and hold investor. I'm not interested in timing the markets. There's no timing that works. And then over, you know, five, six months, it becomes very clear that timing matters and it matters greatly. And you can really avoid losing your capital if you just follow a few major signals. And that's kind of where I would point people. and you can get some really good results. I'm also cautious with the technicals here. We're quite extended from the April lows. We've had, I think I mentioned, it's the longest positive run, 115 consecutive positive trading days.

23:19JD Henning:And it's been five years since we've seen it that good. And it could be another five years before we see it that good again. So I'm getting a little cautious at these heights, Multiple days of hitting new highs is great, but I think we're seeing some profit taking and some rotation. Of course, I look at the cyclical patterns. We're heading into Q4, which is historically the best quarter of the year, going back to 1927. And I'm hopeful that it's going to be another rally time and we're going to have record results on all of our portfolios again. What would you say about your favorite market, broad market ETFs, or how would you encourage investors to think about ones to get into?

24:04Like, is it SPY, DIA, QQQ? What are your market ETFs that you're most encouraging of?

24:12JD Henning:Well, that's a good question because it changes. My favorite has certainly been GDXU this year. That's the gold fund. We were up 240 % from May on the buy signal. I like the rotation that I'm seeing into Labu, the LABU biotech, and we've already rode it up to over$100 a share from the April lows. certainly the semiconductors the 3x SOXL fund S-O-X-L we had 100 % gains in that from the April lows and we've traded in and out based on the technical the technology sector gauges but I have my eye on health care I certainly like rare earth minerals that's another fund R-E-M-X I think there's very good long-term potential in rare earth minerals.

25:11JD Henning:And then we're also in some bear funds right now. We've been getting negative signals in the consumer cyclicals. That's led by Tesla and Amazon. They've had a very good run. And much of that will depend on their next earnings. We're just kind of taking it day by day, looking at the signals, a little bit cautious that we're in some high overbought levels. I'm a little cautious, a little wary that investors are margined and leveraged to the highest levels that Goldman has recorded since 2021. When it gets that leveraged, it gets frothy. And any downturn makes the pullback three times worse or two times worse than we would like.

25:57JD Henning:And so that creates panic selling. And so I'm a little wary that we're entering some frothy market conditions, but I'm encouraged that Q4 has begun and it's been the most positive quarter of the year historically. And I'm encouraged by that. And I think there's going to be sectors to load up in that we've had to rotate and we've just been following the signals. Gold and crypto sector hitting record highs right now. You've alluded to it and touched on it briefly. I'm curious what else you might say about those two sectors specifically. Okay. Well, I think they have tremendous long-term potential.